THE BOND MARKET IS NOT BEING FOOLED BY "2017 TRUMP CROSS CURRENTS"
Long Term US Treasury Yields have been is an unrelenting downward trend since Paul Volcker was Fed Chairman in the early '80's. This trend is not about to be reversed because there is simply no other solution to the US debt problem. The Federal Reserve and its macro-prudential policies of Financial Repression is acutely aware of this. The long term well defined channel is so controlled that it is hard not to conclude that it is not "managed"?
The Trump administration's potential to push rates higher is a genuine event that will likely unfold throughout 2017. But as many of the best bond analysts in the world have argued, the top in yields is likely between 2.65 and 3.00% on the 10Y UST. None of these predictions violate the long term trend and as a matter of fact suggests the Trump victory was irrelevant, this was to be expected!
But how will 2017 unfold?
After a historic sell-off in the treasury market and a short term consolidation, we appear to have reached yield support.
Our analysis suggests this may play out in the following near term fashion, before heading higher towards the 3.00% range.
More nimble trades may want to take full advance of the Ides of March and the upcoming debt ceiling wrangle which is about to enthrall a divided congress.